Launched into operation on the midnight of July 1, 2017 in a special session of Parliament, the Goods and Services tax (GST) was hailed as the single-biggest tax reform - which subsumed 17 existing indirect taxes, including the excise duty and sales tax.
"Single unified GST law with removal of tax cascading and seamless flow of input tax credits across the country paving the way for creation of a single national market with uniform GST rates across all goods and services has been GST's biggest achievement," said Atul Gupta, Senior Director - Deloitte India.
After some initial teething implementation issues, that spelt trouble especially for India's small and medium-scale businesses, coming right on the heel of demonetisation, collections under the new indirect tax system saw a year-on-year growth rate of 8.9 percent in December 2019.
"The rationalisation of GST rates has also been a big milestone. Number of entries in 28 percent slab has been reduced from 228 to 37 over a period of 3 years," Gupta said.
For a prolonged period, GST has been a work in progress so far, as evident from the number of changes it has undergone over the years. In 2017, 29 circulars and 11 Orders were issued. In the year 2018, 44 Circulars and 7 orders were issued. In 2019, 44 circulars, 2 Orders, and 11 corrigenda were issued. In 2020, 10 Circulars, one order, and one instruction were issued. In total, 127 circulars, 21 orders, one instruction, and 11 corrigenda were issued.
Compliance hurdles have also resulted in lower than expected GST collections. GST collections in the month of March stood at Rs 97,500 crore. During April-February 2020, the total tax revenue collected was Rs 16.88 lakh crore, including Rs 8.13 lakh crore from direct taxes and Rs 8.75 lakh crore from indirect taxes.
"The subdued revenue collection remained a concern area for the Government, though the significant increase in compliance levels (demonstrated by almost 10 lakh increase in monthly return filing on an average) and the wealth of data available should provide some hope for increased collections, once the current crisis subsides," said Pratik Jain, partner and leader, indirect tax, PwC India.
Though the structural complexities with regard to technology and multiple tax rates have added to its pain points, the pandemic right in the middle of an already slowing economy, has added the newest challenge. With the nature of business and life undergoing a change, the fourth year of GST would be about strengthening the IT infrastructure, rationalising multiple GST slabs and rates, easing the compliance burden, and reworking the compensation mechanism for states.
The most immediate challenge before the GST Council would be to sort out the issue of compensation to states. States are expected to take up the falling revenues as they are battling the economic threats of COVID-19.
GST collections for March reduced sharply, as the central government's GST collection dropped 87 percent year-on-year (YoY). The due date for payment of tax is June-end.
Faced with dismal collection and extended deadline for filing returns, the government refrained from releasing the monthly GST revenue collection figures for April and May.
Finance Minister Nirmala Sitharaman said the Centre would be looking into the legality of GST Council borrowing from market to meet the compensation requirements.
Going forward, the government should look at measures to increase cash flow in the hands of businesses so that the capital can be used by the industry to attract the customers to the market and increase sales.
"This should automatically result in revenue augmentation as well," said Rajat Bose, partner - Shardul Amarchand Mangaldas & Co.